Markets: A pivotal week for global monetary policy

According to Elliot Clarke, Research Analyst at Westpac, the past week has been pivotal for global monetary policy, with both the FOMC and ECB meeting.

Key Quotes

“Broadly, the FOMC franked market expectations by: raising the fed funds rate by 25bps for a second time in 2018; remaining optimistic over economic activity in 2018 and 2019; but cautious on inflation prospects. Together with the activity and inflation forecasts, the median 2018 rates expectation of the Committee shifting from 3 to 4 hikes (as one member altered their forecast) is best construed as evidence that risks are tilting to the upside not that four hikes have been locked in.”

“We continue to forecast a third 2018 hike in September and view a follow-up (fourth hike) in December as a risk if the 10-year yield fails to rise materially above 3.00%. A further two hikes are factored into our forecasts in 2019, taking the fed funds rate to 2.625% (if a fourth hike in 2018 does not occur). As we see neutral as 2.5%, in tandem with a stronger US dollar and the end of increased government spending, this is likely to be enough to cause a material slowdown in growth in late 2018, putting a halt to the FOMC’s hiking cycle come June 2019. The FOMC instead believe neutral to be higher, circa 2.9%, and so expect to be hiking into 2020.”

“From the ECB, we received two significant announcements: the ceasing of net asset purchases at December 2018 after at 3-month extension at €15bn per month; and a commitment to keep key ECB rates unchanged through northern summer 2019. The latter was most significant for the markets, highlighting downside risks to the outlook and the difficulty that the ECB continues to have in stoking core inflation towards target. The net result on markets of these two meetings is a stronger US dollar (at the expense of the Euro) and lower market rates across the curve in Europe.”

Share: Feed news

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.

If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.

FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.

The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.